‘Phantom Costs’ Explain Why Some Deals Seem Too Good to Be True
Fear of hidden costs pushes us to avoid “free money” or suspiciously good offers
If a stranger offered you a free cookie, you might well eat it. But what if they offered to also give you $2? You might politely decline and walk away thinking, “Something smells fishy.”
In a study published in Personality and Social Psychology Bulletin, researchers found that people tend to turn down offers of “free money” (as well as unusually high salaries or suspiciously cheap services) because they seem “too good to be true.” The research bridges economics and psychology to explain why financial incentives can backfire.
In the initial experiment, nearly 40 percent of participants ate a cookie offered freely—compared with about 20 percent of those offered $2 as well. “People typically imagine things like that someone did something disgusting to the cookie,” says study lead author Andrew J. Vonasch, a psychological scientist at University of Canterbury in New Zealand.
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Nine further experiments, involving more than 4,000 participants, used online questionnaires to present other scenarios. These included being offered money to accept a ride home, outrageously high construction-job wages and surprisingly cheap flights. In each case, past a certain threshold, higher potential monetary gain reduced participants’ likelihood of accepting the offer.
Vonasch says the study illustrates that, contrary to the “standard economic model,” which supposes humans always seek to maximize gains, transactions need to be understood as social interactions between people trying to understand each other’s minds.
If someone seems to…
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